November 16 2008
By Lee Hyo-sik
President Lee Myung-bak ruled out the possibility of utilizing IMF money, Sunday, citing Korea’s sufficient foreign exchange reserves and the bitter memory of the bailout following the 1997-98 Asian financial crisis.
After attending the G20 summit in Washington Saturday, Lee said that the government will not need to turn to the Washington-based organization for funds, stressing the nation can ride out the current economic difficulties on its own.
“The government has decided not to use an IMF loan because if we receive money from it, everyone will see that as a sign of trouble. We had no choice but to ask for dollars from the IMF 10 years ago, but the situation is completely different now,” the President noted.
He then said the financial institution should reform itself drastically to regain creditability among its member economies. “In a meeting with IMF Managing Director Dominique Strauss-Kahn, I told him that the way the IMF treated troubled economies 10 years ago tarnished its image because it imposed a range of stringent conditions that did not help the recipients much. I urged him to spare no effort to overhaul the organization to be reborn as a trustworthy international entity,” Lee stressed.
Additionally, Bloomberg quoted Deputy Strategy and Finance Minister Shin Je-yoon as saying that Korea will not tap the IMF for loans because the nation has sufficient foreign exchange reserves and other lines of credit it can draw upon.
It also reported that Shin said the Korean government may introduce more fiscal stimulus measures to boost domestic demand and thus spur growth amid growing concerns of a global recession and its fallout on Korea.
“If circumstances worsen, we are ready anytime to take more action. We want to stimulate domestic demand by using fiscal policy. We still have much room to implement such measures,” the newswire quoted Shin as saying.
His remarks come at a time when the world’s 13th largest economy is facing increasing downside risks in the wake of a global economic downturn as domestic demand continues to deteriorate, failing to offset falling outbound shipments.
Major research institutes at home and abroad project that Asia’s fourth largest economy will expand by below 4 percent next year, with UBS floating the possibility of only 1.1 percent growth. The state-run Korea Development Institute projected that the economy will grow 3.3 percent from a year earlier, while Samsung Economic Research Institute put Korea’s 2009 growth rate at 3.6 percent.
However, the government has pledged to propel growth to the 4 percent range, create 200,000 jobs and post a current account surplus of $5 billion next year through a $26 billion stimulus package, equal to 3.7 percent of GDP. The package includes 11 trillion won in additional spending to initiate public infrastructure projects, and three trillion won in tax cuts.
The Bank of Korea has also slashed the benchmark seven-day repurchase agreement rate by 1 percentage point to 4 percent since late last month in a move to ease a liquidity shortage and minimize the economic downturn.